Lucent: Alcatel’s White Elephant?

Since the proclaimed “merger of equals,” which actually was an Alcatel acquisition of Lucent Technologies, barely perceptible murmurs have built into anxious rumors suggesting that Alctatel’s purchase of the former American telecommunications-equipment powerhouse will go down as one of the worst acquisitions Alcatel has ever made. That’s really saying something, if you look back at Alcatel’s checkered history of mergers and acquisitions, but it’s increasingly likely that Alcatel will rue the day it determined that buying Lucent was a better course to follow than allowing it to fall into the hands of one of its competitors in a relentlessly consolidating telecommunications ecosystem.

Yes, there will be some operational efficiencies that result from the merger. The accountants and technocrats will cut the fat — as well as countless pounds of human flesh. Still, at the end of the day, does Lucent make Alcatel more competitive, given that the former has hemorrhaged its best talent during years of existential uncertainty, executed poorly in the field, and lost its strategic compass? The answer should be obvious, and of great concern to Alcatel’s many stakeholders.

The acquisition price tag was high enough, but that’s not where Alcatel stops paying for Lucent. Closing offices and slashing payroll will entail immediate hits on the books, even though long-term savings might follow. Meanwhile, it’s not clear whether Alcatel can sort out which R&D projects at Lucent are worth pursuing and which should be curtailed or scrapped. Many of Lucent’s products, including its formerly sterling portfolio of gear and other infrastructure for wireless operators, will need to be significantly overhauled. As mentioned earlier, excellent talent has left Lucent and gone elsewhere as the company staggered from quartered to quarter in recent years. The remaining troops at Lucent know they’ll bear the brunt of “cost savings” to be pursued by the merged company in 2007, and they also have suspicions that their salaries and pensions will be reduced in 2008.

The general rule of thumb with large acquisitions is that the bigger they are, the more likely they are to fail. The odds of failure increase if the companies involved are of similarly large dimensions, because the buyer’s ultimate control and its imposition of a coherent overall strategy are harder to achieve over the dissident din of recalcitrant (but influential) voices in the acquired firm. A further, related complication is cultural conflict, something that is certain to be acute in the case of Lucent, an American telecommunications vendor with regal AT&T Bell Labs lineage, and Alcatel, a French telecommunications concern with a substantial ownership stake held by the French government. Another strike against this deal, right from its inception, was the geographic distance that separates the executive teams of these two companies. As anybody in business can tell you, distance breeds distrust and suspicion. Paranoia is likely to be rife among executives on both sides of the Atlantic Ocean.

Today, as if on cue, Lucent announced its third-quarter earnings and revenue will fall, primarily because of slower sales of wireless network equipment in North America. Revenue is down, not only sequentially, but down sharply compared to revenue in the same quarter a year ago. Sales in China dropped off, though not as significantly as those in North America. Lucent isn’t trying to spin the story all that strenuously, and that’s probably wise. More of these announcements probably are on the horizon. Alcatel, which still plans to close the acquisition toward the end of this year, ought to resign itself to a steady diet of declining expectations.

McAfee CEO Acknowledges Concerns About Microsoft

McAfee’s CEO George Samenuk is more forthright than John Thompson, his counterpart at Symantec, when it comes to acknowledging the competitive threat posed by Microsoft’s growing commitment to security.

In an interview with IDG News Service, Samenuk said the following:

“Do I worry about Microsoft? Yes. But I worry more about protecting customers. Having fully integrated product lines for consumers, small businesses and large enterprises will be the differentiating factor for McAfee. Certainly, some unaware consumers may go with Microsoft; however I think computer users, Internet users are savvy enough that they know they need total protection.”

In a similar sort of interview recently, Thompson was dismissive of Microsoft, saying Symantec worried only about customers, not competitors. In fact, though, Symantec’s acquisition strategy, including its controversial purchase of Veritas last year, belies Thompson’s posturing and protestations. Symantec made its move into storage infrastructure and its attendant security adjuncts to bolster its enterprise offerings, and to reduce its relative business exposure to competition from Microsoft in consumer and SME markets.

As for McAfee, I am not confident it can count on Microsoft to leave gaps in its security offerings indefinitely. Given Microsoft’s array of security acquisitions during the past couple years, it’s clear that it intends to provide its customers — consumers, SMBs, and large enterprises alike — with comprehensive security solutions. It’s also clear that Microsoft finally has owned up to its security obligations as a vendor of operating systems, applications, and online services.

Microsoft is responsible for the security of its flagship products. It can’t depend 0n third parties to do the job on its behalf. That approach already has proven bad for customers and deleterious for Microsoft, though it did open the way for companies such as Symantec and McAfee to build successful security franchises. Both companies now are being compelled to redefine their mandates, as well as their relationships with customers, to maintain and grow the market presences they’ve established.

F5 Stock Falls As Takeover Rumors Dissipate

As we thought, there wasn’t any substances to rumors that roiled markets last week about an imminent acquisition of F5 Networks by one of the few major computer-networking players with the means to execute such a transaction. F5’s stock has fallen this morning, perhaps too much, as the acquisition rumors lose force. Somebody with the power to do so wanted to make a market in F5 shares, bidding them up for sale on the acquisition rumor and now buying back those shares at a lower price as day traders with acute attention-deficit disorder race to their next dubious get-rich-quick stock.

F5 is a good company, a market leader in network gear that provides secure delivery and optimization of networked applications. It also is a company with a history of steadfastly refusing takeover overtures. There is no indication that F5 has lost its will to remain independent, and there also is no indication that the market (the real market comprising people in enterprises who buy networking gear) is demanding the sort of dramatic consolidation we’ve seen in the telecommunications food chain.

WSJ on Dell Advertising

In its column on advertising today (yes, subscription required), the Wall Street Journal makes much ado about very little, suggesting that Dell and HP are suddenly focusing on lifestyle marketing rather than technical messages in their advertising and branding campaigns.

The Wall Street Journal talks as though this is a new development, but Dell and HP have been engaging in classic consumer-style branding for some time. Recall, if you will, the HP ads for digital photography, with The Kinks’ “Picture Book” serving as the soundtrack, or Dell’s “Dude” commercials, in which the “cool factor” supposedly was attached to buying a Dell PC. Yes, Dell and HP might be attempting to get increasingly personal with essentially depersonalized, mass-market advertising — playing to sentimentality more than they did with previous campaigns — but what we’re seeing is decidedly evolutionary rather than revolutionary.